New Zealand may pick foreign central-bank chief

JamesGlynn

SYDNEY (MarketWatch) -- New Zealand is taking its search for a new central-bank chief overseas, but it's a hard sell.

The bold move could make the Pacific island nation only the second developed country in the world, after Israel, to hire a foreigner to head up this crucial area of policy making.

On paper, it looks like the dream job for someone with the right resume who loves the great outdoors. Perks include an office in picturesque Wellington, the power and freedom to unilaterally set interest rates, and an enviable degree of job security--only two people have occupied the governor's chair in the past two decades. Not to mention that it pays about $500,000 a year, more than double what Ben Bernanke earns as U.S. Federal Reserve chairman, although trailing the salary of Australia's central-bank chief, Glenn Stevens, who pockets a cool $1 million.

New Zealand already struggles to hold onto homegrown talent. A series of earthquakes that devastated the second-largest city of Christchurch, killing 184 people and causing 15 billion New Zealand dollars ($12.52 billion) in damage, has led to more people leaving the country and thus further shrinking the pool of local talent. According to Statistics New Zealand, the country registered a net loss of 1,900 migrants in 2011, the biggest annual drop in 10 years--including a record 36,900 net loss to Australia.

Foreigners thinking of applying should also consider that they're walking into the center of a political storm. Don Brash, a central bank governor for 14 years before retiring a decade ago, argues that placing a foreigner in charge of such a delicate area of national policy could be a major risk. It's a step, after all, that few other countries would dare contemplate, let alone implement.

"It would be very hard to be a central bank governor in New Zealand without a very strong background knowledge of the economy," Brash told The Wall Street Journal in an interview. Other critics are less diplomatic.

"I think a foreigner would be a disaster," says Annette Beacher, Asia-Pacific Head of Research at TD Securities and an expert on New Zealand's economy. "It would effectively communicate that New Zealanders don't think they can control their own monetary policy."

The call went out last week after the incumbent governor of the Reserve Bank of New Zealand, the 61-year-old Alan Bollard, announced he was departing in September following two consecutive five-year terms in the role. Top head hunters Heidrick & Struggles are responsible for finding the right candidate, and advertisements have been placed in international media, including the Economist magazine. A spokesperson from Heidrick & Struggles in New Zealand declined to comment and referred all questions to the Reserve Bank of New Zealand.

A spokesman for the RBNZ also declined to comment, and Finance Minister Bill English, who ultimately will make the appointment, turned down offers for an interview.

David Parker, finance spokesman for New Zealand's opposition Labour party, is among those who believe that appointing a foreigner to deal with the challenges ahead wouldn't necessarily endanger the country. But he says there is enough homegrown talent to pick from.

"I'm always a little suspicious of the marginal benefit of increasing the pool beyond our shores," he says. "We've got our share of people that are just as astute."

Smaller than Hungary but bigger than Vietnam in the World Bank's measure of global economies, the country's currency, which is a closely tracked asset in Asia, punches above its weight. The New Zealand dollar is among the top-10 traded in the world, although the country ranks only 55th in the World Bank hierarchy. The Anglo-Polynesian nation of 4.4 million also boasts a strong banking system, as well as access to deep financial markets.

Critics like Parker argue that the RBNZ's focus has for too long been narrowly centered on preserving its 1% to 3% inflation target--introduced by Brash in 1990 to become the world's first central bank to enshrine an inflation-targeting band, a model that at least 23 countries have since followed.

Parker is in favor of a broader mandate for the central bank going forward that includes targeting, for instance, domestic employment goals just as aggressively.

During Bollard's tenure, the benchmark rate climbed to as high as 8.25%, a record, and fell to the lowest levels ever amid some of the most trying global circumstances the country has ever faced. In January, he held the official cash rate at 2.5%, where it has sat since March.

Whoever takes over from Bollard will face the challenge of steering the nation's currency through the continuing risks flowing from the still-fragile global recovery and, at home, the mighty task of recovering from the earthquakes that hit Christchurch.

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